In depth on Bancor V2

Original Title: "In-depth Explanation of Bancor V2 Technology"

Originally written by Lin Ming, co-founder of FirstPool

On August 1st, after 12 hours in running V2 launch, give you the new version of the measured was introduced, technical interpretation to running out today V2. A lot of people writing running V2, look at the Google translation is very good, but fog to understand. Here I divided into two parts to help everyone understand running V2:

1, market-makers level: AMM running V2 innovation, why can avoid uncertain loss.

2, market level: running V2 liquidity principle, why can be 20 times in the same order of magnitude.

The power of Bancor V2 has begun to show in volume and market-maker returns.

Data sources:https://explore.duneanalytics.com

The principle of understanding

How can market makers avoid volatile losses

Why are there volatile losses

Your volatile loss is simply the amount of money that the market maker would lose if you had the same amount of tokens. Most of this loss has been captured by arbitrageurs. The traditional AMM was a mirror, and there was nothing to be done about it, because the total value of both sides of the token had to be equal, which was the amount of a tokens * the price of A = the amount of B tokens * the price of B, and the balance was 50% over 50%.

How to avoid the uncertain loss

The Bancor V2 broke the traditional AMM and introduced the foretold machine price AMM, from then on, the value of tokens on both sides of the AMM did not have to be equal. V2 adjusts the weight of both sides of scrip by using the prediction machine, that is, the quantity of scrip A * the price of scrip A does not have to be equal to the quantity of scrip B * the price of scrip B, which smoothed out the arbitrage opportunity with the prediction machine.

But must pay attention to predict machine just to feed flow cell, adjust the value of flow on both sides of the pool, pool will then flow parameters feedback to formula, and the transaction price is determined by the formula in V2. I know this is very important.

How does the trading level magnify liquidity to reduce slippage

The problem solved by liquidity amplification is to reduce the slip points. Uniswap must have a large enough flow pool to reduce the number of slip points. For most assets, the slip points are not friendly, and the large exchange rate is unbearable. In this aspect, Bancor V2 borrows Curve and introduces stable Curve. Bancor's Curve is between Curve and Uniswap, and its algebraic formula is between X*Y=K and X+Y=K. Use smoother curves to reduce slippage. The simple way to think about it is that it's 20 times more mobile than UNISwaP.

With $100000 reserves of AMM will have a 10% slide in the $10000 deal. However, if the introduction of running 20 times amplification, the slide will be reduced to 1% of the same transaction.

Avoid uncertain loss principle, explained in detail

Ordinary investors here have been able to leave, and I am going to explain the formula level.

Prophesy quotes, drive away arbitrageurs

The key point is to allow AMM to be unbalanced, and to adjust the asset ratio in real time through the feeding of the prediction machine to prevent arbitrageurs from arbitraging.

As we can see, after the price of BNT increased by 4 times, Uniswap had to be taken away by arbitrageurs to make the asset ratio return to 50%/50%, while Bancor, which introduced the prophetic quotation, perfectly avoided arbitrage and adjusted the asset ratio according to the price.

SMA is introduced in the quotation of the prophet

Because the prediction machine quotation 10 minutes, so the middle introduced SMA, using the average price line in 10 minutes, the prediction machine re-quotation, SMA will also adjust the recalcification again, so as to maintain the continuity and accuracy of the price.

Balance the trading pool so that both sides of the asset balance most of the time

The value imbalance after the trade attracts arbitrageurs, and if the momentum is still insufficient, then the dynamic rate will be added later to adjust the balance of positions on both sides.

Why would it attract arbitrageurs? Bancor V2 drove out the arbitrageurs under the AMM formula, but for the imbalance between the price and the market price generated by trading on Bancor V2, there's still a profit to be made.

Under current conditions, traders launched a $5000 worth of business, in 250 changed 12.5 BNT lend, produce difference 1%, which is in the running V2 market you can use a lend 19.8 BNT, but in other markets you can use a lend in 20 BNT, 1% triggered by trade imbalances will be here by external arbitrageurs quickly equalised.

Major imbalances, if both sides pool value assets in the pool is far from the 50% : 50%, there would have introduced similar Yu Yongxu running contracts funds rate adjustment, to make the pool to balance again. Now running opened BNT/LINK of V2 pool, endowed with add liquidity to the highest level, and then high market gains will quickly let the maximum flow pool, also indirectly promote the flow of the balance of the pool. Also reflects the continuous running V2 official tests to 50% / 50%.

Unilateral market

So just to show you the idea of unilateral market making, in some AMMs you're allowed to add a single asset, but there's an automatic 50/50% exchange, and the pool has to be equal, but in Bancor V2, you added an asset, you just increased the proportion of that asset.

For example, 50 BNTS can be added to the figure, increasing the proportion from the previous 50% to 60%, without rebalancing to 50%/50%.

Bancor V2's innovation is so big that it will not only affect the DEX market reshuffle, but also reshuffle the centralized exchange. At the trading level, the Bancor V2 is so deep that the flash exchange must be Bancor. At the market maker level, the token could gain no loss. Why not put the asset in the Bancor for a fee, but put it in the exchange? If you put it in the pool, then I have to envy you very much, because the annualized return is 300%+.

Of course running V2 internal will face a series of problems, such as risk prediction machine on the external competitors Uniswap V3 has more vigorously, DEX in the future market will be more and more competitive, let's wait and see.

The original link:https://bihu.com

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia